India Budget 2017: What does it mean for the aluminium industry?

When Arun Jaitley, India’s Finance Minister rises to present the Budget for 2017-2018 today, February 1, he faces almost the same challenge for the third time: to convince the country that the Budget would propel the economy towards the much awaited “better days” his government had promised for three years ago before coming to power. This year, the task happens to be even more uphill given the setback India received due to the Union government’s recent demonetization drive. However, fiscal consolidation is not the only theme that is going to be the focus area of this year’s Budget, it has to revive investments and at the same time, boost sectors like manufacturing to push job creation on an immediate basis. This is where aluminium industry can expect to get some extra support from the Budget.

1. Indian aluminium sector’s reaction to demonetization has been quite neutral. Minimal effects were seen in the aluminium scrap market, since most of the dealings here are done in cash. However, with time, vendors and logistics providers were able to cope with the effects of withdrawal of currencies of higher denominations. Nevertheless, the base of the pyramid would still be looking forward to some policy support that would make it easier for them to operate in a yet-to-be-organized aluminium scrap industry.

2. In the last budget, custom duty on export of bauxite ore was reduced from 20% to 15% only, which was inadequate. This relief proved to be too little to rejuvenate the bauxite export industry, which has already been battling headwinds from the meltdown in the global commodity markets. In Union Budget 2017-2018, bauxite ore exporters would be looking forward to a further relaxation on the ore’s export duty. However, that may also trigger objections among domestic aluminium producers who have been facing threats of cheap aluminium imports from countries like China and the Middle East.

3. The government should support investment directly by spending more on infrastructure, particularly roads and affordable housing. This will also help raise demand for core industry sectors such as aluminium.

{googleAdsense}

4. The Budget should focus on boosting private corporate investment appetite as it is critical to the revival in the investment cycle. Plus, priority should be given on reviving consumption demand. CRISIL data shows, private consumption growth in India slowed to 5.9% in the second half of fiscal 2017 from 7.1% in the first half. Domestic consumption must be boosted by improving purchasing power of individuals. That will eventually result in increased spending in housing and automobiles, which in turn will provide traction to aluminium end use in the country.

5. Finally, sectors with high potential to absorb labour such as manufacturing, including aluminium, have grown at a slower pace over the last few years. The government should see to it that the “Make in India” drive no more remains an idea bound in papers; for that facilitation should be provided for starting more projects in the downstream aluminium sector.